On 18 January 2018 the OECD published comments received in relation to new tax rules on the disclosure of common reporting standard (CRS) avoidance arrangements and offshore structures. This follows the issue of a consultation document on the mandatory disclosure rules on 11 December 2017.

Proposed CRS disclosure requirements

The proposed disclosure requirements cover hallmarks of a disclosable scheme; the intermediaries that would be subject to reporting requirements; the point where the disclosure obligation crystallizes; information to be disclosed; and penalties for non-compliance. The hallmark for CRS disclosure requirements generally covers arrangements where it is reasonable to conclude that the scheme has been designed or marketed to avoid the CRS or has that effect; and sets out more specific hallmarks. The hallmark for offshore structures covers passive offshore vehicles where there are opaque ownership structures. The test for an opaque structure looks at whether the structure obscures or disguises the identity of the beneficial owner.

Comments received from interested parties

Commentators suggested that the “reasonable to conclude” test is impractical. As the test is subjective rather than objective it would be applied differently in each jurisdiction and would add uncertainty and complexity to the process. A standard of “actual knowledge” would be more objective and would be consistent with the standard already used by reporting financial institutions

Some commentators noted that the hallmarks in relation to avoidance should not be applied with retrospective effect because intermediaries would need time to put systems into place to capture and process the required information. The reporting regime should therefore be applied only in relation to future events. The regime should also not be applied to any arrangements set up before the CRS is adopted in a jurisdiction as avoidance could not exist in a jurisdiction before the legislation is adopted. The start date for the mandatory disclosure regime in a particular jurisdiction should therefore be the start date of the legislation in the jurisdiction.

A longer time frame for reporting was also suggested, for example 30 days, to give the intermediary enough time to assess the application of any features of the hallmark on offshore structures.

Commentators also noted that the hallmark for offshore structures as put forward in the draft is very broad. To ensure that the reporting regime only covers tax arrangements the rules could include a requirement that one of the main benefits is the expectation of a tax advantage. This would ensure that the rules did not cover a taxpayer using an offshore company for other purposes, for example for protection of privacy.

There was also some concern from commentators about overlap between these reporting requirements and other existing reporting rules. Further clarification could be necessary on how to deal with the overlap.

Another concern related to confidentiality. The disclosure requirements can only function properly where absolute confidentiality is guaranteed and this means that any concerns about leakage of information must be addressed adequately. There is concern by intermediaries in some countries about passing confidential client information to the tax authorities as sensitive information could leak out into the public sphere. This could have important consequences for individuals and must be addressed in the implementation of the reporting requirements.